Beware the IRS Amnesty

Beware the IRS Amnesty

By Bob Bauman JD, Chairman, Freedom Alliance

Imagine this very real and somewhat disturbing scenario…

You open your front door to an official looking gentleman, briefcase in hand, who says: “I’m from the IRS and I’m here to help you.”

Well, your natural reaction may be fear, then perhaps concern, then disbelief – the last because you know your visitor’s statement ranks with other classic assurances such as, “The check is in the mail,” and the dentist’s “This won’t hurt.”

Well, it’s back…

To the surprise of some tax experts with whom I talked, U.S. Internal Revenue Service Commissioner Douglas Shulman a few days ago “reopened the Offshore Voluntary Disclosure Program (OVDP) to help people hiding offshore accounts get current with their taxes,” as he so artfully phrased it.

The real reason behind reopening the OVDP may be Shulman’s questionable claim that the IRS has collected more than $4.4 billion so far from the two previous tax amnesty programs in 2009 and 2011.

Now they want more.

Of course, the dutiful American “news” media swallows all this IRS numbers baloney without question. For them, it’s a lot easier than thinking and checking accuracy.

Nothing but a Numbers Game

But that’s a little beside the point. Even if the IRS really did collect $4.4 billion owed in its two most recent amnesty programs, let’s compare that amount to the total tax collected by the IRS in 2009, the latest year for which the always-behind-the-times IRS has numbers.

The total tax collected in 2009 was around $2.7 trillion. So the $4.4 billion collected in late offshore taxes figures out to be 0.16% of the total.

Gasp! Wow! And how many millions did the IRS spend collecting this magnificent sum that might finance the running of the U.S. government for a few hours at best?

Anyway, few tax experts believe that Shulman’s numbers are reliable. (If you want a refresher course on that last 2011 IRS tax “amnesty,” which was more tax than amnesty, check out the expert opinion of my colleague, Mark Nestmann.

The total number of 2011 amnesty filers was “more than I expected,” said Mark Matthews, a Washington, DC-based tax attorney and a former IRS deputy commissioner. But those who came forward, Matthews said, are “still only a fraction of the people who have these (offshore) accounts.”

A Regime of Perpetual Punishment

And so now a new continuous and possibly unending IRS collection program of offshore back taxes takes its place alongside other IRS collection programs, only the penalties are far worse.

The new program, according to the IRS press release, has “…no set deadline for people to apply. However, the terms of the program could change at any time going forward” and “the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.” (A calculated scary threat!)

I believe this latest IRS tax “open door for sinners” is based on a manufactured myth.

The IRS and a flock of big spending leftist U.S. politicians, Obama included, has perpetrated the myth that almost all American's engaged in offshore banking or other financial activity are probably tax evaders.
That big lie fits nicely with Obama’s 2012 re-election class warfare campaign to convince the 50% of Americans who pay no taxes that he won’t let them bear the burden of the other half who he claims aren’t paying their fair share.

When the HIRE Act legislation created the inane Foreign Account Tax Compliance Act in 2010, the congressional Joint Committee on Taxation estimated that the new law would raise only $8.7 billion over 10 years, not the $100 billion that Obama claimed could be collected every single year!

Be Very Careful

As with past IRS amnesties, this latest program will require delinquent taxpayers to give full details of past arrangements, identify banks and promoters and pay all back taxes plus interest. Any binding IRS guarantee that criminal charges won’t be filed is unlikely.

Evaluations will be on a case-by-case basis, depending on whether the taxpayer fully cooperates in the investigation.

The publicity generated by the successful efforts of the IRS to pry information out of Swiss banking giant UBS and pending investigations of a number of other offshore banks has led to many “quiet disclosures” by U.S. taxpayers.

This occurs when a taxpayer simply files amended returns and forms, and pays all back taxes and interest, plus penalties. That route may be available to some under the new program.

The question is: Should you participate? 

The answer is “maybe,” but only after you consult with a qualified tax attorney (not an accountant). This arrangement provides attorney-client privilege for your discussions. The attorney can retain an accountant to prepare the necessary returns if you decide you should participate in the program. Never contact the IRS on your own!

Is Gold going up or Fiat currency coming down?

We should never have come off the gold standard! If we didn't, we wouldn't be in this global financial mess and medicare, Social Security and peoples retirement savings would all be in tact! Nixon was the criminal that took us off the gold standard so he could finance his war in Vietnam! If he didn't, we couldn't have afforded to continue waging that war. On the bright side, we wouldn't have the FOREX market [Currency trading exchange]. Let me explain this in greater detail in layman's terms:

The Four Characteristics
of Real Money

I long for the day when gold is once again selling at $300 or $400 an ounce.

I know that sounds sacrilegious coming from a gold bug. But it’s the truth. A world where gold is no longer front page news, and where gold prices have sunk deeply relative to the dollar, will be a sure sign that the world’s economies, and America’s currency in particular, are back on solid footing.

Sadly, that moment remains many - many - a day away.

Until American politicians fashion an honest plan to reorganize our economically bankrupt nation, the dollar will continue falling in value against the only true money that remains - gold.

Go back and note the construction of that last sentence... the dollar is falling in value against gold. What every financial commentator thinks is a bull market in gold is really a bear market in currencies. Gold isn’t moving in value. It is stationary, like the sun, with all other assets - most importantly, the dollar - revolving around it.

Unlike a stock that moves in relation to itself, currencies move in relation to each other. As one goes up, the other must go down. Currencies everywhere are heading down relative to gold because Western politicians and presidents are incompetent in managing their economies, while central bankers imprudently flood the world with increasingly worthless paper.

So a falling dollar means gold’s value must rise in relative terms. That relationship will only change when the consumers of money - we the people - no longer accept that gold has value and that the dollar does.

But as long as central bankers continue their global assault on currencies, gold is the only money you can rely on to preserve your purchasing power and your sovereignty.

Good Money Must Meet Four
Essential Criteria

At one point in man’s agrarian past, cows and goats were a form of money. The Chinese traded cowry shells before moving on to swatches of deerskin. Native Americans used beads made from clamshells. They were all an accepted medium of exchange. But were they good money?

No.

Good money, as Aristotle first laid out in the 300s B.C., must meet four criteria: divisibility, durability, portability and scarcity (another word for Aristotle’s “intrinsic value”).

Cows and goats are divisible to the degree that you could exchange a side of beef for, say, a bushel of wheat. And they were portable in that you could walk your goat over to the chap selling you the wheat. But pestilence and drought limited the durability of livestock, and it’s not like cows and goats have ever been terribly scarce.

While deerskins are divisible, clamshells and cowry shells aren’t. More important, all you have to do to increase your personal money supply is go out and kill a few deer or stroll along a beach... and suddenly you’re rolling in riches! Easy access to more currency doesn’t make for sound money.

Today’s Western central bankers operate much like beachcombers — only they’re dredging the shoreline with an armada of backhoes and dumping the shells into a wampum economy. The dollars, euros and yen they create are about as scarce as fleas on an outdoor cat. Their value is based solely on faith that the pieces of paper — for the time being at least — are tradable for groceries, gas and bubble gum.

But what about gold?

Divisibility certainly is possible. Durability and portability are unquestioned. As for scarcity... well, miners around the world produced just 76.8 million ounces of gold in 2010, according to the U.S. Geologic Survey — the equivalent of about a quarter ounce of gold for every American.

Fed Chairman Ben Bernanke with his double-barreled quantitative easing campaigns created through fiat a combined 1.7 trillion dollar units — enough to fatten every American wallet with an additional 5,452 dollar bills.

Which is scarcer?

The Difference between Money and Currency

Money is real because its scarcity gives it intrinsic value.

Currency, however, is not so real.

Currency is not a tangible item you can physically hold. It is an invention of the mind we use as a stand in for something else — money. Currency can be an excellent stand in for money, so long as real money always stands behind the currency.

The U.S. dollar, British pound, French franc and German mark (before the invention of the doomed euro) were all at one point backed by gold — the so-called gold standard. But monetary authorities removed the gold. What remained were currency shells.

That’s why today’s currency looks like money. And smells like money.

But it is not money. It is a shell that we ascribe value to at the moment, but then again today’s U.S. dollar bills could just as easily be tomorrow’s cows and goats.

Money — gold, a tangible item — has not lost any value. But the currency — dollars, pounds, yen — most certainly has. The dollar’s spending power has eroded by 50% since gold was freed entirely from government price manipulation in 1973. In the last decade alone, the period in which Congress began spending with criminal disregard for the country, the dollar has lost 4.2% each year on average.

In terms of gold, however, the dollar has lost nearly 85% of its value.

And why? Because U.S. monetary officials have printed dollars at will... and none of those bills are backed by anything but the creditworthiness of a fundamentally bankrupt nation.

People need to recognize that currencies in their current form are nothing more than government IOUs that we trade amongst one another, effectively bartering green and white paper for whatever goods we happen to want. But it is not, by any stretch, money. They have no intrinsic value that is unquestioned.

Gold as money is unquestioned; it’s been the uninterrupted standard bearer of money for thousands of years.

Paper currency erodes in value every time the central banks dump more into circulation. And since currencies move like a see-saw - as one goes up, another goes down - smart people the world over realize that they can exploit the government’s fiat system by trading one piece of paper against another for profit... currency trading. As the currencies fluctuate against one another, you ride them up or down for short-term gains.

It’s a great way to make real money because if you generate more currency units than you started with, you can cash out and buy a little gold.

In the end, money vs. currency boils down to a question of scarcity. Which is scarcer - the money that takes time to produce like an ounce of gold? Or the currency that government mass produces instantly? Determine that answer and you will know where the real intrinsic value resides in the world’s competing currency systems... where the real safety lies for those who watch in disbelief at the financial folly of monetary officials.

If the dollar goes away tomorrow or next year or in the next generation, gold will still remain.

Barney Frank’s Gutter Language and Penchant for Mob Violence Surfaces Again

Well folks, the gay cavalier is at it again. This raving trinket that ignored all warnings of the impending housing bubble and defender of Fannie & Freddie! This flaming gadget is at it again! Check this out:

One of Congress’ least appealing figures, the morals-and-scruples challenged Barney Frank, (D-MA) and reigning People’s Director of Sleaze in absentia from the Halls of Hades, is back in the news once again with his usual tirade against Republicans; as if the Democrats had all the correct answers for our national problems.  Or ANY!
The current case of Frank’s fulmination against the Congressional Republicans stems from the officially called Bank-reform Act more commonly known as Dodd-Frank and as John Ransom of Townline Finance Daily on September 03, 2011 states, “can be called a lot of things, but it’s the furthest away from bank-reform that legislation can get. Dodd-Frank will accomplish a lot of things too, but few of them will be good for America.”Ransom states that “The prime GOP demand is that Congress gut Frank’s perverted bank-reform bill known as Dodd-Frank.” Ramson further quotes Stephen Lewis, Chief Economist at Monument Securities in London “it is already seen to be failing as a means of preventing the revival of market practices that led to the 2007-08 crisis.”  Ransom also quotes Ted Price of Canada’s Office of Financial Institutions as saying, “I think we have seen this movie before but the amazing thing is we continue to expect a different ending.”
How often have we seen this in the Obama-current liberal Democrat Congress that seems to operate continuously under the assumption that they can repeat the same mistakes while expecting different results?  It seems to be their “Inanity for the day.”  Or at the very least, the Obama de rigueur or usurper custom of operation, loosely translated, as is everything in this Administration.Congressman Barney Frank and former Senator Chris Dodd have been designated as major contributing culprits in the infamous Fannie Mae and Freddie Mac government financial scandals of the early Obama presidential years.  Ransom further states, “Barney equates the principled Republican opposition to the disaster that is Dodd-Frank to a “mugging” and generally uses other rhetoric denoting violence. So much for the civility lesson.”
Of course it seems of late that civility, or the lack thereof, has been a trumpeting point for Democrats seeking to degrade Republicans in their insistence of overuse of same by the GOP.  But Frank has never been timid or lacking in spirit to use incivility whenever he is frequently backed into a corner.  In those instances, civility absents itself from Mr. Frank.
But, are other liberal Democrats taking lessons from Barney in derogatory and defamatory discourse, to wit:  Teamsters Union President Jimmy Hoffa, Jr., close buddy of President Obama, in a Labor Day ranting to his fellow union thugs, with the accepting plaudits of Obama standing nearby, saying of the Tea Party, ” let’s take these son-of-a-bitches out.”
On the following day Yahoo News contributor Todd Jacobs wrote, ‘Jimmy Hoffa Jr. Crosses Line with Thuggish Comments’ that Hoffa said, “There’s going to be an election in ‘12, and maybe the answer is, we wipe these people out.” Perhaps he hoped to make it more “civil” and less Barney Frank-ish?  But did you notice how un-labor and goonish-like that timid statement sounded as you read it?
Barney Frank is peeved with Republicans, as you may have noticed, and in particular with Minnesota Congresswoman who is running for President on the GOP platform, Michele Bachmann, who introduced legislation earlier this year for full repeal of the Dodd-Frank Act saying the law protected Wall Street at the expense of taxpayers.
Bachmann was quoted by NewsMax.com in a January 06, 2011 article titled, “Bachmann Moves to Repeal Dodd-Frank Finance Law” by Henry J. Reske, “I’m pleased to offer a full repeal of the job-killing Dodd-Frank financial regulatory bill,” Bachmann said. “Dodd-Frank grossly expanded the federal government beyond its jurisdictional boundaries. It gave Washington bureaucrats the power to interpret and enforce the legislation with little oversight.”
Ironically, Obama will be giving his latest “jobs creation” speech September 08, 2011 for which the Republican Party has no planned rebuttal.
Taking advantage of her position as a Republican member of Congress, presidential candidate Michele Bachmann scheduled a press conference to respond to President Obama’s jobs speech on Thursday night, even though the GOP has declined to offer an official rebuttal.
Candidate and Congresswoman Michele Bachmann was the only Republican to offer a response to Obama’s jobs creation message.  I can’t think of a better person to give this counter to what we all know will be a lot of bluster and egocentric self-aggrandizement.  She was the first one in Congress to initiate a response to the incompetence of the Dodd-Frank Act for bank reform which has since drawn several co-sponsors.
The NewsMax article by Henry J. Reske quoted President and CEO of the American Bankers Association as saying the new law contained a “tsunami of new rules and restrictions for traditional banks that had nothing to do with causing the financial crisis in the first place.  The result will be over 5,000 pages of new regulations on traditional banks and years of uncertainty as to what the massive new rules will mean. The impact of these rules will be very real and will be felt not only by banks, but by consumers,businesses and the broader economy.  Implementation of this legislation will be challenging for regulators,” he said when the measure was signed into law. “
What this all boils down to is that this fiasco of a piece of legislation cooked up by Dodd and Frank will not get to the root of the problems that created the depressed economy and massive job losses starting about five years ago and as Congresswoman Bachmann has said, Dodd-Frank also failed to address the taxpayer-funded liabilities of Fannie Mae and Freddie Mac.
“Real financial regulatory reform must deal with these lenders who were a leading cause of our economic recession,” she said. “True reform must also end the bailout mind-set that was perpetuated by the last Congress. I am proud to work towards repeal of Dodd-Frank because Congress must protect the taxpayers, instead of handing out favors to Wall Street.”
As I said above, Michele Bachmann is the best person of all the candidates to address the usual bluster of Barack Obama on “jobs creation”, a subject on which he is totally absent.  He spent nearly a trillion taxpayer dollars in his first “jobs stimulus” and lost more jobs than were created.  Now he wants $400 billion more; does that mean he won’t lose as many jobs as he did two years ago?

What constitutes treason? Does this?

I don’t know about you, but I always thought that it was an act of treason to intentionally undermine the Constitution. I also thought that intentionally committing acts that economically cripple the country, thus rendering her incapable of defending herself or standing as a sovereign nation was also treason. And doing this at a time when the country is, rightfully or wrongfully, at war, thus, giving aid and comfort to our enemies, in my never humble opinion, leaves no doubt that this is treason.

Since the Democrats gained an unstoppable, lock-step majority in Washington, we have seen nearly a daily occurrence of unconstitutional legislation being passed by Congress and signed by the “president.” In the process, they took a deficit of some four-hundred billion dollars, and nearly quadrupled it in two years, by borrowing and “spending” like crack addicts, and leaving the American people, for generations to come, to foot the bill. I put quotation marks around the word spending, because much of what they did with our money was simply cash pay outs to fat-cat, neo-fascist Democrat bankers, brokers, corporations, and big, corrupt unions, ineptly disguised as “stimulus.”

We have also seen a rash of unconstitutional executive orders spewing from the White House, ostensibly giving the president power over everything from fishing in our oceans and rivers, to the lives of millions of Americans living in rural areas. In addition, totally unconstitutional executive branch agencies like the EPA have been let off the leash and set like snarling Rottweilers on the states and the people.

Lately, to add incredible insult to injury, senile, hate-filled Democrat senators have been out before the ever-willing cameras of the Ministry of Propaganda, aka, the “mainstream” media, calling those of us who want no more spending, no more taxes, and a balanced budget amendment to the Constitution, who by even their own polls are a significant majority, all sorts of hateful, outrageous names. Despicable behavior that degrades an already severely degraded office.

And as always, the lies just keep on coming.

This whole “crisis” is a fake, a set-up. For two-and-a-half years, the neo-fascist Democrats – and this includes every single one of them in the House, and especially in the Senate – have refused to put forth a budget, forcing the government to run on continuing resolutions. In addition, they have passed legislation like Obamacare that has already killed jobs and massively increased the size and cost of government.
The simple truth is that Democrat “spending” has created our financial problems. Period.

America functioned just fine up until 2008. We paid our bills, and took care of the vast majority of our citizens. We had no need for multi-trillion dollar hikes to our borrowing capacity. We are being lied to when neo-fascists like Harry Reid (D-NV) tell us we need to raise taxes, when clearly, what we need is to stop spending and cut government budgets. If Reid wants more taxes, maybe he should look at the 47 percent of Americans who pay no taxes at all, and at corporations like Big Democrat Donor, GE, who, in spite of billions in profits, pays no taxes, either.

The neo-fascist Democrats have made absolutely no good faith effort to come to a workable agreement that will not end up destroying the economy, and therefore, the country. They demand huge, damaging tax increases, and the only specific cuts they have named are equally huge ones, while we are involved in three separate wars, to our defense budget. They have no plan, except to follow the totalitarian strategy of Saul Alinsky, to destroy capitalism.

As for those of us still able to think for ourselves, we need to face a very difficult fact: America is on the very brink, just inches away from becoming a full-blown fascist country.

Leftist infestation of government

Our elected representatives, particularly in the Senate, no longer listen, much less pay attention, to We the People. Even liberal Democrats want the spending stopped and the deficit seriously and effectively dealt with. Not surprising, since during the hated Bush years, “cut the deficit” was the Democrat mantra. However, it obviously was just a ruse, as far as the neo-fascist Democrat politicians are concerned.

The economic “crisis” has been used to institutionalize the “public-private partnerships” and the government facilitation of select industries and corporate entities, e.g., “green” industries and unions, at the expense of everyone else, which is the classic definition of fascism. Combine it with the collaboration with the U.N. and Agenda 21 (http://www.freedom21.org/), and you have global, and thus, neo-, fascism. Can you say, “Germany and Italy, 1930s?”

Back in 1964, Barry Goldwater referred to the leftist infestation of government, saying “None dare call it treason.” Well, that’s exactly what I am calling it. If we make it to November, 2012, we REALLY need to clean house.

IRS Bows to Reason... For Now

For those of you that think that offshore accounts only hurt the rich...think again! It severely limits your choice on how and who you can do business with. This includes ALL foreign investments and stock exchanges. Basically it FORCES you to do business ONLY in the USA. Seeing we are pushing for globalization, it only applies to everyone EXCEPT the US. Many companies now will NOT list themselves on the American Stock Exchanges because of this. Facebook will register in Europe, an American company that you might not be able to invest in! Now isn't that special! Canada is fed up, our biggest trading partner, that supplies us with most of our oil and gas!

It is not often that the U.S. Internal Revenue Service (IRS) bows to reason and changes its collective mind on a given tax enforcement issue, even a little bit.

Last week, in one of those rare instances, the IRS announced that the original January 1, 2013 effective date for the Foreign Account Tax Compliance Act (FATCA) has been dropped.

Under the new IRS schedule, offshore private banks, which face the most onerous IRS requirements under FATCA, will not have to provide details on U.S. clients with accounts with more than $50,000 until the middle of 2014. Lower value accounts at private banks do not need to be reported until the end of 2014. Certain other accounts do not have to be reported until 2015. 

What FATCA means for you and me, is that foreign financial institutions - including banks, investment brokerages and insurance companies - are going to be awash in new reporting regulations if they agree to continue to welcome American clients once FATCA becomes law. Adhering to these regulations will cost these companies many millions of dollars. They will have to expand greatly their compliance departments to stay on top of the U.S. government’s complicated tax and reporting rules.

So if you ran a business, would you cater to the clients that cost you more to serve and bring with them more risk of litigation? Or would you say, “Thanks, but no thanks” and  focus your business elsewhere? It seems pretty simple. And, that is the exact decision thousands of foreign institutions are about to make if FATCA passes

Why FATCA Is Detrimental to
the U.S. Economy

No doubt what brought about this delay were the firestorm of anti-FATCA American public opinion and a chorus of vociferous protests, not only from the international financial and banking industry, but also from foreign government officials.

Canadian treasury officials have been attacking FATCA for months, calling it unworkable, far too costly and an unprecedented U.S. intrusion on national sovereignty. Terry Campbell, Canadian Bankers Association head, charged that the act was “conscripting financial institutions around the world to be arms of U.S. tax authorities.”

Typical of these foreign complaints was last Thursday’s statement that if FATCA was imposed on The Bahamas, it would likely mean that offshore financial center dropping most of its American clients.

The Financial Times noted that offshore banks complained they were being deputized as U.S. IRS agents under orders to identify U.S.-linked accounts worth more than $50,000. If they refuse to comply, they would face a choice of paying a punitive 30% withholding tax on payments received from the U.S. or withdrawing completely from U.S. markets.

In a chilling account in his blog, Dan Mitchell, senior fellow at the Cato Institute, points out, “...since the burden largely is falling on foreigners, there’s no groundswell among voters to repeal the law, even though it will impose far more damage on the American economy.”

What many people overlook is that FATCA threatens to cripple foreign investment in the U.S. at a time when our economy needs everyone  and their brother investing and doing business here.  

This is a serious situation. I believe that FATCA could make it so cumbersome to do business in the U.S. that many foreign companies will bypass us entirely. Need I tell you how detrimental that would be to our country’s already fragile fiscal condition?

What this Law Means for Offshore Investors

I know from your comments that FATCA has been a source of great worry for Americans who rightfully fear a 30% tax on their offshore financial activity. It also has deterred others from “going offshore” - no doubt exactly the outcome that the IRS wants - to keep us all at home where we can be watched and controlled. 

In my view, what is needed now is to take advantage of this temporary victory by mounting a massive campaign to convince the U.S. Congress to repeal FATCA completely.

We are conferring with the Center for Freedom and Prosperity and other like groups about forming an international coalition. We will keep you informed.

In the meantime I strongly urge you to join the repeal FATCA movement.

Write and email your U.S. senators and your congressmen and encourage others to do so, especially those you know who are in banking and financial professions. A sample letter prepared by Americans Citizens Abroad can be found here and although it is much too long, it does provide the arguments against FATCA.

As a cynic at heart, I know that some of you will question the efficacy of citizen action these days, but remember in this battle we are joined by a group U.S. politicians always try to please - banks.

Faithfully yours always,

Where your money goes and why?

This is a well done article and sums it up nicely! Learn a little history here:

 Dr. Ileana Johnson Paugh 
 The total federal budget for 2012 is $3.68 trillion. The interest on debt is $242 billion. The rest constitutes mandatory and discretionary spending.
Discretionary spending refers to the budget appropriated each year. The discretionary budget is one third of the federal budget. Congress directly sets the level of discretionary spending ($1.24 trillion) and can choose to increase or decrease any programs.

In 2012, 57 percent of the federal discretionary budget will be national defense. The rest will include education, health programs, and housing assistance.
Mandatory spending ($2.44 trillion) includes entitlement programs, funded by eligibility rules or payment rules. Congress decides to create a program, determines who is eligible for the program, various criteria, and then estimates how much is appropriated for the program each year based on how many people will be eligible and will apply for benefits.


Social Security, Medicare, and Medicaid are the most costly entitlement programs. Veterans Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price supports are also included in entitlement programs.


Congress periodically reviews the eligibility rules and may change them in order to exclude or include more people.
Mandatory spending makes up about two-thirds of the total federal budget. The largest mandatory program is Social Security, about one-third of mandatory spending. As the age demographic of the country shifts towards an older population, mandatory spending increases.


The controversial national debt or public debt is $14 trillion to $100 trillion, depending on how many variables are considered. Nobody disputes the fact that, over the years, U.S. ran more deficits than surpluses because of recessions, inflation, sluggish growth, wars, oil price shocks, and a steady growth in entitlements.


Two American presidents are largely responsible for entitlements, Franklin D. Roosevelt and Lyndon B. Johnson with the “New Deal” and the “Great Society.” All politicians recognized the popularity of the programs and considered it political suicide to reduce or repeal the benefits once extended. Tip O’Neill called entitlements the “third rail of politics.”
Promising costly benefits to individuals predicated on an unsustainable Ponzi scheme eventually caught up with countries like Portugal, Italy, Greece, and Spain (PIGS), especially since their governments gave up their sovereignty and could no longer control their monetary policies, they were at the mercy of the European Union and its currency, the euro. It is heading in that direction for the United States. Right now, our temporary salvation is the fact that we can print our dollar.


Several administrations changed tax policies, thus altering revenue; new unregulated financial instruments were invented and sold as debt securities to financial markets, creating the capability to finance large debt, and the capability to create dangerous bubbles that could burst.


To service a debt, you must have enough cash over a period to repay the interest and the principal. Normal operating expenses of our country should be fully funded with current tax revenues in order to preserve borrowing capacity for future crises.


If the president tells Social Security recipients that they may not get their checks by August 2 if the debt ceiling is not raised, he is in essence telling them that he does not have any Social Security lock box money, it has been spent long time ago and he must borrow from the Chinese in order to make payments on the Social Security Ponzi scheme. This should give Americans great pause.


For the past three decades, the government has used deficit spending (spending more money than it receives in taxes) in order to cover operating expenses, stealing from Peter to pay Paul. Some economists argue that deficit spending is necessary during recessionary periods. We can all agree that it cannot be sustained indefinitely if it exceeds the growth rate of the economy.


How does the government raise money in order to finance the debt? The Department of the Treasury’s Bureau of Public Debt attracts buyers and arranges for the sale of debt instruments: Treasury bills, notes, bonds, and inflation protected securities. Bills mature in less than a year, notes in two to ten years, and bonds mature in twenty to thirty years. Inflation protected securities (TIPS) are sold in various maturities and are indexed to the rate of inflation. Said securities are sold directly or on secondary markets.


As the U.S. runs more and more debt, the Treasury must find new sources of financing or enforce stricter revenue collection (taxes). Sealed bid auctions are held to finance new debt and to roll over existing debt that has matured and is still outstanding.
About 36 percent of public debt will come due within a year ($1.6 trillion) and another $3.5 trillion over the next three years. In 2009, the Treasury held an auction on average more than once a day to finance $7 trillion of new and maturing debt.


How much more debt will international and domestic investors absorb before reaching a tipping point since the Federal Reserve has kept interest rates so low over an extended period? The more debt U.S. amasses, the more pressure will be put on the Fed to raise interest rates.
Central banks hold reserves in U.S. dollars as a hedge against their own currencies. The price of oil is quoted in U.S. dollars. There is pressure to change that as the economic and political strength of the United States wanes.


The sheer scale of borrowing necessary to sustain growing U.S. deficits, the possibility of default, and the bleak outlook of U.S. economic prosperity because of the recent housing collapse “could well exceed the absorption capacity of Asian central banks for dollar holdings.”
International trade deficits could contribute to the devaluation of the dollar, driving interest rates upward in order to attract more foreign and domestic investment that would sustain our insatiable spending appetite.


As long as investor confidence in the U.S. government exists, there is no danger that investors will dump the dollar in favor of some other currency or gold, triggering a stampede sell-off in U.S. stocks and bonds. Rising interest rates alone could plunge the world into a global financial crisis.
Voracious government demand for credit can “crowd out” private sector investment, causing high unemployment and lack of capital formation. Available pool of creditors choose to lend their money to the government instead of buying corporate stocks and bonds.


If business confidence is low because small business owners see higher taxes in the future or are uncertain about future government regulations, private investment will be “crowded out” resulting in more unemployment or lack of new job creation. The industrial base will weaken, the competition will diminish, research and development will dwindle, and acquisition costs will go up.


“America is like no other dominant power in modern history – because it depends on other countries to sustain its military and economic dominance.” A strong economy supports a strong military, and a strong military supports statecraft.


Past decisions on debt increasingly limit the ability of the government to maneuver economically and to deal with national emergencies such as war by running large deficits. The government runs large deficits now just to maintain the status quo. This “leaves the country more exposed to shocks and more vulnerable to the financial leverage of its creditors.”


Thomas Jefferson summed up the quandary best when he said, “The laws of nature made it unfair to impose the debts of one generation upon another.” Perhaps, instead of nation building in Iraq, Afghanistan, Libya, and other countries that do not understand nor want democracy, who are not grateful nor thankful for our help, we should concentrate on our nation’s needs, our infrastructure, creating attractive investment opportunities in the process. We should also return our government to fiscal responsibility and our own citizens to self-reliance, not handouts and entitled cradle-to-grave welfare.


How the U.S. Gov't Is Choking Off Access to Traditional Safe Havens

Another story on how America is losing in the Global financial world. Foreign companies are no longer placing themselves on our stock exchanges due to high taxes and TOO MUCH REGULATION!

Everywhere I go in the financial world in Europe, I hear the same thing: The U.S. is shooting itself in the face.

The problem is the regulations the U.S. now insists every nation impose on U.S. companies or people seeking to do business or lower their taxes.

For instance, there are two Swiss cantons that are using low corporate taxes to lure companies to place their headquarters there. The more famous one is Zug, but the up-and-coming one is Obwalden (which just passed a flat tax rate of 6% of a company's profits).

Companies from all over the world are using this to lower their taxes. But when even the bluest-chip U.S. company – publicly traded on the NYSE – sought to do so recently, it was turned away. Almost no one wants to deal with U.S. companies or people anymore. They've decided it is more problem than it is worth, due to the intense regulatory atmosphere from the U.S.

It used to be that anyone, from whatever nation, could come to the Obwaldner Kantonalbank (OKB) and open an account, even if they had just $100. (Those who know the gold and silver ETFs offered by the Zuricher Kantonalbank (ZKB) know these banks are backed by the cantonal governments and are thus very safe. These are the banks that are regarded as public utilities.)

But starting around four years ago, with the UBS debacle and the U.S. financial crisis, this all changed. The long arm of the U.S. government and the numerous new regulations have made OKB decide it will not take on American clients.

And please don't think I'm talking about tax-evaders here. Americans who used to be able to open accounts with tiny amounts of money at a safe bank like this and treat it just as they would their local banks, fully declaring all their money – these people are no longer welcome. It was with sadness that they told me this. But it is just too much trouble dealing with all the American red tape.

The effect of this is to deny small U.S. investors a way to protect themselves from unsafe banks and devalued U.S. currency. Now, pretty much anyone except Americans can do this.

It goes the other way, too. Non-U.S. companies used to dream of listing themselves on the NYSE: That was the "big-time." But it is no accident that the overall number of listings on the "Big Board" reached its peak in 1997 and has been falling ever since.

Again, the problem is excessive regulation. The companies can list themselves on Hong Kong, Singapore, or London exchanges with much less cost and headache. The list of companies who have turned down a chance to list themselves on U.S. exchanges is long.

It goes further than this. There are many nations on earth that have no inheritance taxes, or maybe just small ones. But if a non-U.S. person buys stocks in the U.S. (in excess of about $60,000), their estate has to pay U.S. estate taxes if they die. So no wonder people are not excited to buy U.S. stocks.

If the object of the government is to encourage investment, entrepreneurship, and create jobs, this is exactly the wrong way to go about it.

And I'm not blaming just one political party. Things are the same now as under the last American president. It's as if the nation has decided it no longer wants to encourage its companies or foreigners to invest in the U.S. Most likely, they don't think of it in those terms; they likely still think that since the U.S. is such a great country, then of course anyone would want to invest there.

But the truth is that by doing these things, non-U.S. people are less likely to invest, and thus the U.S. is seen to be simply hurting itself.

More than just hurting itself, it is building up ill will all around the world. It is getting so that people will be avoiding the U.S. entirely, going around it to invest and even trade. I know this sounds like an extreme reaction. But if things go the way they've been going for the last four or five years, this will be the result.

The American government can put on all these restrictions and keep out foreign investors and companies who want to list on the NYSE. It can deny the right of even the smallest investor to diversify into another banking system with a stronger currency.

But will this make for a stronger U.S.? Are we entering a new world where everyone prospers except for Americans? If so, it is particularly sad, since America will be turning its back on the very ideas which made it so great.

You see, one hundred years ago, there was outright famine in Obwalden. Full of farmers who often had 10 children, the available farmland was just not enough for the people. Starvation got so bad, the Swiss government offered anyone free passage to America if they would promise never to come back. Many of them settled in the Imperial Valley of California, about as far from the Alps and green meadows as you can get.

The U.S. was haven for the poor people of Obwalden, who were starving and saved by moving to America. These people are very appreciative of what America offered to their great-great-grandparents: America literally saved their lives.

And that is why they don't understand why America is now "destroying itself," as one of them told me. They are very, very sad to see it happen. In fact, they seem much sadder and more concerned about what has happened to the U.S. than most Americans do.

Who Controls the Price of Oil?

Most people do not understand what drives the price of oil but readily accept the explanation pushed by this administration that it is the unbounded greed of oil companies and their “fat cat owners.” Oil companies are publicly traded and many Americans and other foreign nationals or entities can own stock or bonds in these firms.

Most economists agree that the oil industry is an oligopoly, a market dominated by a few sellers, synonymous in developed countries with “big business.” An insidious form of oligopoly, which dominates the oil industry, is the cartel. The cartel’s firms join forces to control production, sale, and the price of oil.OPEC, the most notable and successful cartel, controls 44 percent of the world’s crude oil production and 79 percent of world’s crude oil reserves. By restricting output, its members, Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela, quadrupled the price of oil between 1973-1974 and 1979-1980.

OPEC should not be able to burden consumers to the same extent now because large oil reserves were discovered in Alaska, North Sea, Canada, and the Gulf of Mexico. However our business-killing EPA regulations and Obama’s seven-year moratorium on drilling in the Gulf do.
When oligopolists organize themselves in a successful cartel such as OPEC, prices will be higher and outputs lower. Cartels are illegal in the U.S. even though some companies such as railroad and gas pipeline transportation behave like cartels under regulations that prevent firms from undercutting prices. According to the Wall Street Journal, Exxon’s margin of profit for both oil and gas ranks #60. There are 59 more profitable industries than the oil industry. Oil and gas firms profit 8 cents per dollar of sales.Pharmaceuticals profit 20 cents and banks profit 18 cents per dollar of sales  According to the Report to Congress made in April 2008 called “Oil Industry and Profit Review,” the factors contributing to high gas prices were:

• world unrest
• increases in the price of crude oil that pushed the spot price of West Texas Intermediate (a key oil price in determining market prices)
• tight market conditions
• demand growth in China, India and other parts of the developing world
• political unrest in Nigeria, Venezuela, Iraq, Iran and other parts of the world
• the decline of the value of the U.S. dollar on world currency markets
• investment strategies of financial firms on the oil futures markets
• volatility of the world oil and financial markets

The refining segment of the market performed relatively poorly during the same period. According to the U.S. Energy Information Administration, there are 148 operable refineries in the U.S., down from 150 in 2009.  Only 137 refineries are actually operating, down from 141 in 2009. Eleven refineries are idle for various reasons. The atmospheric crude oil distilling capacity is 16,937,024 barrels per calendar day of actually operating refineries.


We have not built new refineries in the U.S. in the past 25 years. The last refinery built was in Garyville, Louisiana and it started in 1976. In the mid 1970s, a refinery construction was proposed in Portsmouth, Virginia. The company canceled the project in 1984 after a nine-year court battle with environmentalists. Even if we drilled more, we could not refine the excess supply of crude.
There are three reasons why oil refineries are not built:

• refineries are not particularly profitable
• environmentalists fight planning and construction every step of the way
• government red tape makes the task almost impossible

According to Investor’s Business Daily, the cost of building a new refinery is $2-$4 billion. Twenty billion dollars have to be dedicated over a ten-year period to reducing the sulphur content in gasoline.  Additionally, 800 different permits have to be collected. The long-term rate of return on capital is just 5 percent.


“I’m sure that at some point in the last 20 years someone has considered building a new refinery,” says James Halloran, an energy analyst with National City Corp. “But they quickly came to their senses.”


The current administration keeps pushing the euphemism “green energy” although there are no plans in the foreseeable future for such affordable energy. Any hybrid or electric car uses electricity generated with fossil fuels, including the maligned coal, which the president promised to put out of business. The electric Volt is only popular with the die-hard leftists since less than 500 were sold so far.


Today’s oil prices are twice as high as they were in 2008 and nine times as high as they were in 1998.  The price of oil also hinges on the perceived replacement cost of the next barrel of oil and nobody is quite sure what that price will be. 


 In Canada, it costs $40-$60 per barrel to extract the oil from the sands. It costs Chevron $15 per barrel to deep drill crude from the Gulf of Mexico. It is even cheaper in the Middle East. The political and physical risk of extracting the oil in war zones is even higher.


The volatility factor depends on the volatility of our economy. None of Obama’s economic stimulus has worked. In March, during intense fighting in Libya, he said that there was no supply shortage and rising oil prices was not a good reason to tap reserves. He changed his mind on June 23, when he released oil from our Strategic Petroleum Reserves under the excuse of turmoil in Libya. Again, it was a failed economic stimulus.


Christina Romer, former White House chief economic advisor, told a crowd recently that we are in a “growth-less recovery.” Only in a liberal fantasy world is a recovery without growth. The patient is flat-lined but somehow still alive.
Republicans and big business blame Obama’s drilling moratorium as a culprit in the oil price problem. Democrats blame “speculators” on the Chicago Board of Trade for soaring gas prices, particularly Goldman Sachs whose influential analysts move all markets.


The Commodity Futures Trading Commission is investigating manipulation when the price of natural gas dropped 8 percent in 14 seconds in after-hour trading on June 8. The commission charged two traders with swindling $50 million in profits by manipulating oil markets in 2008.
“They bought physical cargoes they did not need to artificially inflate prices while also buying derivatives so they would profit as the prices rose. They bought other derivatives that would pay off later when the prices fell – which they did after they sold the physical barrels, catching other traders off guard.”
Attempting to corner a piece of the market is illegal but can warp prices for a short period, resulting in higher prices for consumers.


Current world supply can also be an expression of consumption growth in China and India by more than half a million barrels of oil per day. There is a world spare capacity of 3-4 million of barrels of oil per day, which can shrink, with more consumption growth, thus resulting in higher prices.
Liberals believe that supplies should be rationed through deliberate higher prices in order to protect the planet from unnecessary pollution. They are not concerned that it would stifle economic growth. Their main concern is how it would affect the re-election of Obama. To prevent a re-election loss, Democrats want to release more strategic reserves into the market in order to keep the gas price lower at the pump and thus please the voters.